CFTC Grants Substituted Compliance for French Nonbank Swap Dealers

The CFTC granted conditional substituted compliance allowing a French nonbank swap dealer to satisfy CFTC swap dealer capital and financial reporting requirements by complying instead with the corresponding EU rules. 

In its Order, the CFTC said it assessed the comparability of the European Union's Investment Firms Regulation ("IFR") and Investment Firms Directive ("IFD") against its own bank-based capital approach. The CFTC explained that Sections 4s(e) and 4s(f) of the Commodity Exchange Act direct the CFTC to impose capital requirements and financial reporting obligations on swap dealers that are not subject to a U.S. prudential regulator. CFTC Rule 23.106 establishes a substituted compliance framework under which the CFTC may determine that a foreign nonbank swap dealer's compliance with its home country's capital and financial reporting requirements satisfies all or part of the CFTC's requirements.

The CFTC noted that in July 2024, it issued four comparability orders granting substituted compliance to nonbank swap dealers organized in Japan, Mexico, the European Union, and the United Kingdom. The CFTC explained that the 2024 EU order covered only nonbank swap dealers subject to the EU's Capital Requirements Regulation and Capital Requirements Directive, not those subject to the IFR and IFD. The firm in question is subject to the IFR and IFD regime thus could not rely on the 2024 EU order and submitted its own application in September 2024.